San Diego Benefiting From Qualcomm’s Good Fortune

SAN DIEGO —  They are the “Quillionaires,” the lucky ones who have struck it rich from holdings in one of the country’s hottest stocks, Qualcomm Inc., and they are out buying houses and imported cars, giving to local causes and elevating the San Diego economy.

They owe their newfound wealth to the stunning rise in Qualcomm’s stock price to $156.44 from $6.50 over the last year, the fifth-largest gain of any U.S. company. Among the newly minted millionaires: at least 1,000 local Qualcomm employees with windfalls in stock options and bonuses and probably as many local investors who capitalized on the run-up. Qualcomm is flourishing because it developed a critical technology that’s licensed to all manner of wireless communication systems.

The Qualcomm story, and all the economic benefits that have accrued, may be old hat for other high-tech localities such as Seattle, Silicon Valley and Boston, all long accustomed to stock-boom bonanzas.

But in San Diego, Qualcomm’s boom is something new to savor. Qualcomm is Topic A in conversations at the gym, at restaurants and on local morning talk shows. “I was at a basketball game with my kids this weekend, and it was kind of embarrassing. It’s all people want to talk about,” said Qualcomm Vice President Dave Brandos.

Though Qualcomm stock has lost 13% in value during the last two trading days, its shareholders as a group are still $100 billion richer than they were a year ago.

The mega-rich are led by Qualcomm Chairman Irwin Jacobs and his wife, Joan, whose Qualcomm stock and options are worth about $4 billion. And because roughly half of Qualcomm’s 9,000 employees have stock options, much of that Wall Street wealth is percolating up in San Diego.

Signs of sudden wealth abound in upscale bedroom communities such as Carmel Valley, where houses worth $500,000 sell the first day on the market, and in the BMW of San Diego showroom, where Qualcomm employees bought five cars from one salesman just last month.

The stock surge has also been very good for local charities, educational institutions and cultural causes, which have received tens of millions from Qualcomm, its executives and shareholders.

Despite its gold-plated aura, Qualcomm has its warts: There have been protracted patent disputes, some layoffs, small civic spats and even a bitter battle with former employees who lost valuable Qualcomm stock options when their division was sold.

But the local wealth being created by Qualcomm--a home-grown company founded in 1985 by former computer science professors--and the economic benefits it is spinning off are filling a gaping void here, one that has existed since the post-Cold War defense cutbacks laid the region’s economy low.

Some Qualcomm employees and investors are acutely aware their good fortune could be ephemeral. Rick Champagne, who works in the company’s Globalstar division and who has bought a Chevy Blazer with his recent stock gains, has been concerned about layoffs. Qualcomm this week announced that a few hundred temporary employees were being let go.

And John Sutter, a chemist in San Diego whose parents own 2,000 shares of Qualcomm, says that despite his parents’ newfound riches, they’re uneasy. “I hope it lasts, but I can’t believe it will. The stock’s totally overvalued.”

“It’s kind of unreal. . . . It hasn’t really sunk in yet,” said Phil Karn, a Qualcomm engineer who has greatly profited through company stock options.

The rocketing stock price also has triggered Qualcomm insiders to cash in some of their holdings. Anthony Thornley, Qualcomm’s chief financial officer, sold shares worth an estimated $17.4 million in the first 11 months of 1999.

For now, the community is basking in the national attention and good fortune. Mayor Susan Golding, whose administration received $18 million from Qualcomm to help finance a controversial sports stadium expansion in exchange for naming rights, credits Qualcomm for a “technology renaissance” in San Diego.

Furthermore, Qualcomm executives led by Jacobs and Vice Chairman Andrew Viterbi, also a billionaire, have become the ultimate good corporate citizens.

“San Diego charities have hit the mother lode,” said Adrienne Vargas, associate director at the San Diego Foundation, who said the foundation cashed in $2.2 million of Qualcomm shares donated to it.

The Jacobses have donated millions to such recipients as UC San Diego’s engineering school ($15 million), now named after them, and the La Jolla Playhouse ($5 million). The Jacobses’ sons also have donated to local causes, including several million dollars to fund a new High Tech High School set to open in San Diego in the fall.

The core of the company’s success lies in its complicated digital telecommunications technology called code division multiple access, or CDMA, used in mobile or wireless telephones. The technology, a commercialized form of defense communications, is a method of compressing and coding digital signals to maximize over-the-air capacity and security.

Qualcomm sells its technology primarily through licensing or in semiconductor chips used in phones and other equipment. CDMA is seen by many analysts as the dominant technology for future generations of wireless phones, especially since the settlement last year of a patent suit with Sweden’s Ericsson.

The company’s primacy has dawned on investors just as the world is poised for a huge spurt in wireless telephone use, prompting Wall Street to gush about limitless sales horizons. “What the market is saying is that the industry is growing rapidly, that wireless will supplant telephone wires over the next several years, and that Internet access over wireless phones will begin to move in 2001,” said Jacobs, 66, a former UC San Diego computer sciences professor.

The bottom line: Qualcomm’s market value--the total value of its shares--is up spectacularly to about $108 billion from $4 billion in early 1999.

In addition to stock profits, the local economy has gained a powerhouse employer in Qualcomm, which is the county’s largest private employer after only 14 years. Qualcomm’s business alliances also have drawn other wireless companies such as Nokia, Denso, LG InfoComm, Ericsson and Motorola to the region.

The county boasts 23,000 telecommunications workers, up from 4,200 in 1991, making it the fastest-growing job sector, according to the Greater San Diego Chamber of Commerce.

Telecommunications, which supplied 13% of all new San Diego County jobs last year, was a major factor in San Diego’s regional economic growth last year (6.4%), outpacing the state (5.9%) and nation (4.4%), the chamber said.

The downside of growth can be seen on San Diego’s increasingly clogged highways and in higher housing prices, which rose 10% last year. Realtors say prices are poised for an even bigger spurt this year with inventories of desirable properties at extremely low levels.

There is also a nascent movement to force the county to put clamps on new building permits. But slow-growth advocates are having trouble gaining momentum, perhaps because memories are still fresh of San Diego’s protracted slump in the early 1990s, when defense cutbacks caused total jobs, incomes and housing prices to shrink as top defense contractors such as General Dynamics and Hughes left town.

The only U-Haul trailers then seen on San Diego’s highways were “headed to Tucson, Portland or Coeur d’Ilene, Idaho,” said Robbi Campbell, an agent at Dyson & Dyson real estate in San Diego. Cultural and charitable groups felt the pinch, notably the San Diego Symphony, which went bankrupt in 1996.

How quickly things change.

“How many people have gotten rich [from Qualcomm]? If you put the bar at $1 million in stock, it could be thousands. If you put it at $10 million, it could be hundreds,” said a prominent local educator.

Among the disenchanted few is Thomas Sprague, a former Qualcomm manager who is suing the company because he lost options now worth $12 million when his infrastructure division was sold to Ericsson as part of a wide-ranging settlement between the two rivals. More than half of his Qualcomm stock options were wiped out.

Sprague accuses Qualcomm of reneging on promised compensation and wants his options reinstated, as do about 1,400 other employees of the equipment business who have joined in the lawsuit still pending in San Diego Superior Court.

“God, I wish I had bought more Qualcomm stock,” Sprague said with a sigh. “But isn’t that what everybody says?”